Management and Cost Accounting Student Manual, 11th Edition
By Colin Drury
Part I Questions 1
An introduction to cost terms and concepts 3
Cost assignment 7
Accounting entries for a job costing system 16
Process costing 23
Joint and by-product costing 30
Income effects of alternative cost accumulation systems 39
Cost–volume–profit analysis 45
Measuring relevant costs and revenues for decision-making 55
Pricing decisions and profitability analysis 66
Activity-based costing 74
Decision-making under conditions of risk and uncertainty 83
Capital investment decisions: appraisal methods 90
Capital investment decisions: the impact of capital rationing, taxation, inflation and risk 96
The budgeting process 102
Management control systems 114
Standard costing and variance analysis 1 122
Standard costing and variance analysis 2: further aspects 130
Divisional financial performance measures 138
Transfer pricing in divisionalized companies 150
Strategic performance management 162
Strategic cost management and value creation 172
Cost estimation and cost behaviour 184
Quantitative models for the planning and control of inventories 189
The application of linear programming to management accounting 195
Part II Solutions 203
An introduction to cost terms and concepts 205
Cost assignment 209
Accounting entries for a job costing system 218
Process costing 227
Joint and by-product costing 234
Income effects of alternative cost accumulation systems 246
Cost–volume–profit analysis 253
Measuring relevant costs and revenues for decision-making 266
Pricing decisions and profitability analysis 277
Activity-based costing 285
Decision-making under conditions of risk and uncertainty 296
Capital investment decisions: appraisal methods 304
Capital investment decisions: the impact of capital rationing, taxation, inflation and risk 310
The budgeting process 317
Management control systems 329
Standard costing and variance analysis 1 338
Standard costing and variance analysis 2: further aspects 345
Divisional financial performance measures 355
Transfer pricing in divisionalized companies 369
Strategic performance management 380
Strategic cost management and value creation 388
Cost estimation and cost behaviour 398
Quantitative models for the planning and control of inventories 403
The application of linear programming to management accounting 411
Following Colin’s passing in 2019 I have followed exactly his approach to updating the content of this manual, which provides a comprehensive set of problems and solutions covering all topics within the main text, Management and Cost Accounting, 11th edition, to which it is complementary.
Throughout the main text the illustrations have been kept simple to enable the reader to understand the principles involved in designing and evaluating management and cost accounting systems. It is essential that students work through a wide range of problems to gain experience in the application of key concepts, but there is insufficient classroom time for tutorial guidance to meet this requirement. The Student Manual provides this guidance by enabling students to work independently on a wide range of problems and compare their answers with the suggested solutions.
Learning is substantially improved if students attempt the problems independently, even though their solutions may be incomplete or of a draft nature, before examining the solutions provided. It is also helpful to discuss answers with fellow students. All of this reinforces learning and understanding. There is much less benefit from just ‘auditing’ the solution provided without attempting it. The answers given in this manual are our own and not the approved solutions of the professional body setting the question. Where an essay question is asked and a full answer requires undue repetition of the book, either references are made to the appropriate sections of the main book, or an answer guide or outline is provided. You should note that there will be no ‘ideal’ answer to questions which are not strictly numerical. Answers are provided which, it is felt, would be generally acceptable in most contexts. Students working through this Student Manual and the main text, Management and Cost Accounting will find that examination bodies often set multi-part questions, those of a case-study style including problems which straddle various topics. Occasionally segments of a problem require knowledge from other, including later, parts of the book. In this case cross reference is made to the other chapters for further reading or greater explanation. Care has been taken to ensure that each question is located in the chapter to which it is most appropriate. Where possible, the questions are arranged in ascending order of difficulty. The reader should select questions which are appropriate to the course which is being pursued. As a general rule questions titled ‘Basic’ or ‘Intermediate’ are appropriate for a first-year course. A first-year course is often mainly concerned with cost accounting, which is covered in Part II of the main text. Questions titled ‘Advanced’ are appropriate for a second-year course.
Assessment in both university and professional accounting is evolving. Often this is with greater use of objective tests (OT), multiple-choice questions (MCQ), or drag-and-drop-based short problems. Periodically, larger questions or case studies with a number of related parts (sometimes pre-distributed) are employed containing cross-functional and contextual material.
This evolution has a number of features (benefits):
● Short OT questions enable assessment across a syllabus, covering all required learning outcomes, whereas a single traditional question may focus on only part of these.
● There are unambiguous answers to well-prepared OT questions. This removes any marker subjectivity, although all examination bodies go to considerable lengths to ensure markers employ the same standards.
● Assessment using OT questions can be managed electronically, which is more economical, convenient and standardized.
● The larger questions or case studies replicate more accurately the complexity of practising management accounting in a real business setting. These will be marked subjectively, but greater time and effort can be devoted to this single part of the assessment. Candidates may be required to understand, compute, explain, adapt, critique some content and use it to make judgements and recommendations.
The graded questions in this book are an ideal way to prepare for all these styles of assessment. In any situation (OT or case study), candidates can only make a correct judgement if they understand the overall problem and how any one part fits with the whole process. This will be guided by making attempts at a combination of basic, intermediate and advanced questions which support each chapter.
Finally, I would like to thank, once again, the Association of Accounting Technicians, the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants for permission to reproduce questions which have appeared in past examinations.